Loss assessment coverage is protection for condo unit-owners and members of other homeowners associations (HOA) and provides coverage for insurable losses involving the building or its common areas. In most condo communities, your HOA has its own insurance that covers incidents outside of your personal unit. However, these claims sometimes exceed the HOA master policy limits. If that's the case, unit-owners might be asked to step in and make up the difference. Loss assessment coverage can help HOA members avoid paying these assessments out of pocket when a common area claim requires your individual assistance.
Potential hazards for HOA members:
- There's been major weather damage to the outside of the building.
Let's say hail or wind strip away major parts of the building, leaving $1,500,000 in needed repairs. Problem is, your HOA master policy only carries $1,000,000 in property coverage. In this case, the HOA might assess the extra $500,000 to the condo owners — if you're in (for the sake of easy math) a 50-unit building, that's $10,000 you have to cough up. Loss assessment may be used to cover that cost for you, helping make sure untimely damage doesn't put an unexpected strain on your personal finances. - Someone's been injured in a common area.
Regardless of the fact that HOAs are typically responsible for the common areas of the community, HOA members also have a responsibility for whatever happens to guests on the property.
If someone breaks a leg on the tennis court, has a mishap in the pool area, or simply slips in the front entrance to the lobby, their injury bills could easily exceed the HOAs liability coverage. Luckily, loss assessment coverage can provide coverage (up to your limits) and help you avoid being left on the hook for an injured guest's medical fees, physical therapy, and pain/suffering claims. - Shared property inside the building has been damaged.
If a fire, explosion, or other covered loss damages the elevators, lobby, carpeting, inner walls, etc., you might be asked to shoulder a part of the load in repairing them if the cost goes beyond the HOA master policy limits.
What happens if you don’t have Loss Assessment coverage, or you don’t have sufficient coverage?
Your association’s board of directors can place a lien on your property. If you fail to satisfy the lien within a certain period of time, they can force your home into foreclosure and recover the special assessment when your property is sold at auction.
Keep in mind that an HOA can force an assessment on HOA members at any time and if this is not due to an insurable loss, will not be covered by your loss assessment coverage. (Eg. HOA needs to repave the parking lot and requires funds from all unit owners to do so)
How much loss assessment should an HOA member get?
When deciding how much loss assessment coverage to get, we should first take a close look at HOA master policy. This will shed light on what the HOA is responsible for versus what the HOA members are responsible for, how high their coverage limits go, and whether they have special deductibles for certain hazards.
As a general guideline, it's best to get as much loss assessment protection as the client can comfortably afford. Even $100K of coverage is very affordable.
Earthquake Loss Assessment Coverage
There are a few reasons for HOA members to purchase the special earthquake loss assessment coverage:
- The HOA did not have earthquake coverage on the building. In order to rebuild, funds will have to come completely out of the association’s budget. Since associations typically do not carry large reserves this will almost always result is an assessment against the individual unit owners.
- The HOA did not have enough earthquake coverage on the building. Often earthquake coverage for buildings has a sub-limit and does not cover the entire reconstruction value of the building
- The HOA had a large earthquake insurance deductible. Most earthquake policies have a very high deductible. Unit owners would be assessed their proportionate share of the deductible.
EXAMPLE: The building had earthquake coverage with a 15% deductible. The building was insured for $1,000,000 and there were 15 unit owners in the building. The deductible for this policy would be $150,000 (15% of $1,000,000). Each unit owner therefore, could be assessed $10,000 each ($150,000 divided by 15 unit owners).
We would love to answer any questions that you might have. Contact Kovalev Insurance today and request a complimentary consultation to ensure your property and finances are properly protected.
